A STUDY ON FINANCIAL PERFORMANCE USING FINANCIAL RATIOS OF SELECTED BSE NSE LISTED ENGINEERING SMALL AND MEDIUM ENTERPRISES (SMEs) OF INDIA

Abstract

India's economy is expanding quickly and the country is becoming a global leader. Even while big enterprises account for a major proportion of GDP, micro, small, and medium-sized enterprises also have continued to make a substantial contribution over the years. The micro, small, and medium enterprises are the backbone of the Indian economy, employing over 11 crore people and accounting for approximately 49.87% of all exports in the country. About 633.88 lakh MSMEs contribute to 28.77% to India's GDP. The study aims the financial performance of small and medium-enterprises in India with special reference to Maharashtra region. The population frame of BSE and NSE listed SMEs in India is projected to be more than 22,000, based on the Prowess IQ database as of 15.8.2023, from which a sample of 10 engineering companies are selected based on market capital for the present study. To understand the liquidity and profitability performance, eight different financial ratios were employed. Appropriate statistical tests such as mean, standard deviation and ANOVA were used on the secondary data collected from the Prowess IQ database for the financial year 2013-14 upto year 2022-23. The majority of medium enterprises did better in terms of profitability performance (return on assets, return on equity, return on capital employed, net profit margin and gross profit margin). The performance of small businesses was high in profitability (price-earnings ratio and yield ratio) and liquidity (current ratio). Overall performance of Medium enterprises was better than compared to small enterprises.

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A STUDY ON FINANCIAL PERFORMANCE USING FINANCIAL RATIOS OF SELECTED
BSE NSE LISTED ENGINEERING SMALL AND MEDIUM ENTERPRISES (SMEs) OF INDIA
Kumarjay Shakya
Ph.D. Research Scholar, CVM University, Anand
Dr. Swaty Parab
Ph.D. Guide, CVM University, Anand
Abstract - India's economy is expanding quickly and the country is becoming a global
leader. Even while big enterprises account for a major proportion of GDP, micro, small, and
medium-sized enterprises also have continued to make a substantial contribution over the
years. The micro, small, and medium enterprises are the backbone of the Indian economy,
employing over 11 crore people and accounting for approximately 49.87% of all exports in
the country. About 633.88 lakh MSMEs contribute to 28.77% to India's GDP. The study
aims the financial performance of small and medium-enterprises in India with special
reference to Maharashtra region. The population frame of BSE and NSE listed SMEs in
India is projected to be more than 22,000, based on the Prowess IQ database as of
15.8.2023, from which a sample of 10 engineering companies are selected based on market
capital for the present study. To understand the liquidity and profitability performance,
eight different financial ratios were employed. Appropriate statistical tests such as mean,
standard deviation and ANOVA were used on the secondary data collected from the Prowess
IQ database for the financial year 2013-14 upto year 2022-23. The majority of medium
enterprises did better in terms of profitability performance (return on assets, return on
equity, return on capital employed, net profit margin and gross profit margin). The
performance of small businesses was high in profitability (price-earnings ratio and yield
ratio) and liquidity (current ratio). Overall performance of Medium enterprises was better
than compared to small enterprises.
Keywords: Small and Medium Enterprises, Financial Performance, Financial Ratios,
Maharashtra.
1 INTRODUCTION
Micro, Small, and Medium-Sized Enterprises (MSMEs) plays a vital role in the Indian
economy, it acts as a catalyst for economic growth, job creation, and innovation. These
businesses work in different industries like technology, agriculture, manufacturing as well
as service industry. These SMEs supply raw materials to major companies but have fewer
labour and resources than larger enterprises. MSMEs are the backbone of the Indian
economy, providing 31.83% of GDP and jobs for 1109.89 lakh people (Research &
Information Division, 2019). Given its critical role in the economy, it is imperative to
comprehend the financial performance of this industry. While there are several methods for
analyzing the financial performance of different businesses, financial ratio analysis is the
most popular and extensively applied method. Financial ratios help in decision-making and
provide insight into the financial performance from a variety of perspectives (Tamplin,
2023). This study uses fourteen distinct financial ratios to analyze the financial
performance of selected public listed small, and medium-sized enterprises in Maharashtra.
2 LITERATURE REVIEW
The study "Financial Performance Analysis of MSME" by Kharat et al. (2022) examines the
major obstacles and data analysis facing MSME in India prior to, during, and after the
COVID-19 pandemic. This research is exploratory in nature, using observation to generate
concepts and ideas for future theoretical development. The study makes use of secondary
data that was gathered online from news stories, essays, and MSME annual reports. a mix
of qualitative and quantitative metrics applied to the subject's theme analysis. It was
determined that India's absence of SME databases prevents more R&D in the industry. The
MSME sector, which is the foundation of the Indian economy, requires the most recent
technological advancements in accounting and finance.
Yumna et al. (2020) on the subject of "The Determinants of Micro, Small, and
Medium Enterprises (MSMEs) Financial Performance: A Literature Review." Highlights

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literature review on the factors that influence financial performance. The systematic
literature review (SLM) method was applied in the investigation. It was clarified that one of
the most crucial aspects of MSMEs is their financial performance. Because financial risk in
this industry is considerable, financial risk management in this industry requires careful
consideration.
In the research article by Setiana et al. (2020) in the research article "Factors
Affecting the Financial Performance of Micro, Small and Medium Enterprises (MSMEs)
During the COVID19 Pandemic in Yogyakarta City" highlighted the elements affecting
businesses' financial performance during the COVID19 pandemic. Data from secondary
sources was gathered using a structured questionnaire. Indonesia's Yogyakarta City is
included in the study region. The three main variables that were shown to be related to
financial performance were tax relief, credit extended, and the caliber of the financial
report. Using a regression model, the study demonstrated how three independent variables
had an impact of 38% on the dependent variable, which is the financial performance of
MSMEs during COVID19. Additionally, during COVID19, the credit facility had a notable
effect on the financial performance of the chosen MSMEs.
Gade (2020) in the research article "MSMEs Role in Economic Growth - a Study on
India's Perspective." highlighted the contribution of MSMEs to the expansion of the Indian
economy. This study was exploratory in nature and used secondary data from the 2014–15
MSME Annual Reports. According to the report, MSMEs in India have expanded steadily
over time. Despite the fact that there is a significant need for technological advancement
and financing availability, it makes up a significant portion of India's GDP and exports.
3 RESEARCH METHODOLOGY
 Population Size: The population for the study includes all the listed SMEs in India,
which is estimated as 395 listed companies according to the data collected from BSE
SME portal in India.
 Sample Size: 10 companies are selected based on market capital from BSE and NSE
listed Engineering Small and Medium Enterprises of India.
 Period of Study: The study covers the period for 10 years starting from year 2013-14
upto year 2022-23.
 Objective: To study the profitability performance and liquidity performance of the
selected companies.
 Hypothesis:
H0: There is no significant difference between the profitability ratios of the selected
companies.
H1: There is significant difference between the profitability ratios of the selected companies.
H0: There is no significant difference between the liquidity ratios of the selected companies.
H1: There is significant difference between the liquidity ratios of the selected companies.
4 DATA COLLECTION AND ANASLYSIS
Data Collection
 For the present study secondary data is used collected for BSE NSE listed 10 companies
related to engineering in Small and Medium Enterprises in India, total 10 different
financial ratios were collected from Prowess IQ Database starting from the year 2013-14
upto year 2022-23. The sample companies selected in this study mentioned below:
RANK
NAME
SMEs
MARKET CAP. (in crore rupees)
STATE
1
Servotech Power Systems Ltd.
Medium
1737.4
NCT of Delhi
2
Emkay Taps & Cutting Tools Ltd.
Medium
763
Maharashtra
3
Macpower C N C Machines Ltd.
Medium
759.42
Gujarat
4
Taylormade Renewables Ltd.
Small
739.34
Gujarat
5
R M C Switchgears Ltd.
Medium
564.38
Rajasthan
6
Affordable Robotic & Automation Ltd.
Medium
499.21
Maharashtra
7
Felix Industries Ltd.
Small
440.42
Gujarat
8
Sprayking Agro Equipment Ltd.
Small
216.54
Gujarat
9
Pulz Electronics Ltd.
Small
167.49
West Bengal
10
Aartech Solonics Ltd.
Small
148.95
Madhya
Pradesh

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To study the financial performance, financial ratios are selected as the population is infinite
hence financial ratios remain a suitable tool to understand the financial performance of the
selected companies. Total 10 financial ratios are selected which explain the liquidity and
profitability performance of the company.
LIQUIDITY RATIOS
1. CURRENT RATIO
H0: There is no significant difference between the current ratios of the selected
companies.
H1: There is significant difference between the current ratios of the selected
companies.
ANOVA
CURRENT RATIO
Sum of
Squares
df
Mean
Square
F
Sig.
Between
Groups
8.853
1
8.853
7.884
.023
Within Groups
8.983
8
1.123
Total
17.836
9
Since the p-value (Significance) is 0.023, which is less than the typical significance level of
0.05, you would reject the null hypothesis. This suggests that there are statistically
significant differences in the current ratio between small and medium enterprises.
Financial Performance
Liquidity
Performance
Current Ratio
Quick Ratio
Profitability
Performance
Gross Profit Margin
Net Profit Margin
Return on Assets
Return on Capital
Employed
Return on Equity
Earnings Per Share
Price-Earnings Ratio
Yield Ratio

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ANOVA - CURRENT RATIO
N
Mean
Std.
Deviation
Std.
Error
95% Confidence
Interval for Mean
Minimum
Maximum
Lower
Bound
Upper
Bound
SMALL
5
3.5192
1.39377
.62331
1.7886
5.2498
2.21
5.56
MEDIUM
5
1.6374
.55062
.24624
.9537
2.3211
1.23
2.59
Total
10
2.5783
1.40775
.44517
1.5712
3.5853
1.23
5.56
The descriptive statistics shows that the mean current ratio of small enterprises is almost
three times the mean current ratio of medium enterprises indicating that the small
enterprises have a higher current asset to meet its current liabilities compared to medium
enterprises.
2. QUICK RATIO
H0: There is no significant difference between the quick ratios of the selected
companies.
H1: There is significant difference between the quick ratios of the selected
companies.
ANOVA
QUICK RATIO
Sum of
Squares
df
Mean
Square
F
Sig.
Between
Groups
4.159
1
4.159
4.179
.075
Within Groups
7.963
8
.995
Total
12.122
9
The p-value (level of significance) is 0.075, which is above the significance level of 0.05. This
suggests that we accept the null hypothesis at the significance level of 0.05. This indicates
that there is some evidence suggesting differences in the quick ratio between small and
medium enterprises, but it is not strong enough to reach significant levels.
PROFITABILITY RATIOS
ANOVA
Sum of
Squares
df
Mean Square
F
Sig.
GROSS PROFIT MARGIN
Between Groups
331.689
1
331.689
2.218
.175
Within Groups
1196.196
8
149.524
Total
1527.885
9
NET PROFIT MARGIN
Between Groups
455.102
1
455.102
2.095
.186
Within Groups
1737.559
8
217.195
Total
2192.661
9
RETURN ON ASSETS
Between Groups
22.647
1
22.647
1.087
.328
Within Groups
166.659
8
20.832
Total
189.305
9
RETURN ON CAPITAL
EMPLOYED
Between Groups
43.218
1
43.218
1.200
.305
Within Groups
288.018
8
36.002
Total
331.236
9
RETURN ON EQUITY
Between Groups
54.672
1
54.672
.711
.424
Within Groups
614.877
8
76.860
Total
669.549
9
EARNINGS PER SHARE
Between Groups
291.647
1
291.647
1.901
.205
Within Groups
1227.375
8
153.422
Total
1519.023
9
PRICE-EARNINGS RATIO
Between Groups
457.897
1
457.897
.708
.425
Within Groups
5173.331
8
646.666
Total
5631.228
9
YIELD RATIO
Between Groups
.015
1
.015
.131
.727
Within Groups
.907
8
.113
Total
.922
9

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1. GROSS PROFIT MARGIN
H0: There is no significant difference between the gross profit margin of the selected
companies.
H1: There is significant difference between the gross profit margin of the selected
companies.
The p-value is 0.175, which is higher than the level of significance 0.05. Hence, we
accept the null hypothesis, suggesting that there are no significant differences in the
Gross Profit Margin between small and medium enterprises.
2. NET PROFIT MARGIN
H0: There is no significant difference between the net profit margin of the selected
companies.
H1: There is significant difference between the net profit margin of the selected
companies.
The p-value is 0.186, which is higher than the level of significance 0.05. Hence, we
accept the null hypothesis, indicating that there are no significant differences in the
Net Profit Margin between small and medium enterprises.
3. RETURN ON ASSETS
H0: There is no significant difference between the ROA of the selected companies.
H1: There is significant difference between the ROA of the selected companies.
The p-value is 0.424, which is higher than the level of significance 0.05. Hence, we
accept the null hypothesis, indicating that there are no significant differences in the
Return on Assets between small and medium enterprises.
4. RETURN ON CAPITAL EMPLOYED
H0: There is no significant difference between the ROCE of the selected companies.
H1: There is significant difference between the ROCE of the selected companies.
The p-value is 0.305, which is higher than the level of significance 0.05. Hence, we
accept the null hypothesis, indicating that there are no significant differences in the
Return on Capital Employed between small and medium enterprises.
5. RETURN ON EQUITY
H0: There is no significant difference between the ROE of the selected companies.
H1: There is significant difference between the ROE of the selected companies.
The p-value is 0.424, which is higher than the level of significance 0.05. Hence, we
accept the null hypothesis, indicating that there are no significant differences in the
Return on Equity between small and medium enterprises.
6. EARNINGS PER SHARE
H0: There is no significant difference between the EPS of the selected companies.
H1: There is significant difference between the EPS of the selected companies.
The p-value is 0.205, which is higher than the level of significance 0.05. Hence, we
accept the null hypothesis, indicating that there are no significant differences in the
Earnings Per Share between small and medium enterprises.
7. PRICE-EARNINGS RATIO
H0: There is no significant difference between the Price-Earnings Ratio of the
selected companies.
H1: There is significant difference between the Price-Earnings Ratio of the selected
companies.
The p-value is 0.425, which is higher than the level of significance 0.05. Hence, we
accept the null hypothesis, indicating that there are no significant differences in the
Price Earnings Ratio between small and medium enterprises.

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8. YIELD
H0: There is no significant difference between the Yield Ratio of the selected
companies.
H1: There is significant difference between the Yield Ratio of the selected companies.
The p-value is 0.727, which is higher than the level of significance 0.05. Hence, we
accept the null hypothesis, indicating that there are no significant differences in the
Yield Ratio between small and medium enterprises.
MAJOR FINDINGS AND CONCLUSION
Major Findings:
 The small enterprises showed high current ratio compared to medium enterprises,
which was two times the ideal standard.
 The quick ratio of small enterprises was high and above the ideal standard, whereas
for medium enterprises it was average and below the ideal standard.
 The gross profit margin and net profit margin of medium enterprises was very high
compared to small enterprises. Moreover, the net profit margin for small enterprises
was very poor and also some enterprises was loss bearer during the period of study.
 The medium enterprises performed better compared to small enterprises in return
on assets.
 The medium enterprises also performed better than small enterprises in return on
capital employed, but highest ratio was 17.31 which belong to small enterprise.
 The return on equity of small enterprises was low and medium enterprises
performed better than small enterprises.
 The earnings per share of medium enterprises was the strongest and was very week
for small enterprises. The highest Earnings per share for medium enterprises was
42.56 and the highest for small enterprises was 3.56 per share.
 The small enterprises performed better in price-earnings ratio compared to medium
enterprises.
 The yield ratio of small enterprises was high compared to medium enterprises.
CONCLUSION
The present study aims to highlight the financial performance of selected BSE NSE listed
engineering Small and Medium Enterprises using financial ratios. The financial
performance was studied using liquidity ratios and profitability ratios. The study concl uded
that small enterprises performed better than medium enterprises in liquidity performance
and the current ratio of small enterprises was three times that of medium enterprises. The
profitability performance of medium enterprises was high compared to small enterprises
based on gross profit ratio, net profit ratio, ROA, ROCE, ROE and EPS. Although small
enterprises performed better than medium enterprises in Price-earnings ratio and yield
ratio. Based on profitability performance the medium enterprises were better than small
enterprises and can be concluded that medium enterprises are more efficient in managing
their finance to earn high profits compared to small enterprises.
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